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Understanding Your Life Insurance Premiums

Life insurance premiums are a confusing topic for many people.

The fact is that over 87 million households in the U.S. have some form of life insurance plan. Most recognize that it is a great risk management tool for anyone who is looking to protect their family.

However, life insurance premiums can vary quite a bit. For example, the average annual rate for a 30-year-old man can range from a few hundred dollars all the way up to several thousand dollars.

Your premiums depend on individual factors, as well as the type of policy you choose.

As a result, people considering life insurance for the first time have many questions.

What factors determine premiums? How do premiums differ between the two primary types of policies? Are life insurance premiums tax deductible?

If you find yourself confused, stay calm. We are here to answer your questions and help you understand the topic.

Keep reading to learn more about life insurance premiums and how individual factors impact premiums.

What Determines Life Insurance Premiums?

This is one of the most common questions regarding life insurance.

Generally, the more risk the insurance company takes on, the higher the premium.

From the perspective of the insurance company, the ideal situation is that every insured person outlives the term.

Obviously, this is rarely the case. However, it is important to keep this in mind when considering why insurance companies price premiums the way they do.

There are many specific factors that determine an individual’s premium. Some things are completely out of your control, whereas others are the direct result of your life choices.

Outlined below are a few of the biggest factors that determine life insurance premiums.


As you age, your odds of developing severe health issues increase.  Therefore, the older you are, the more expensive your premium will be. This is why it is ideal to buy life insurance earlier in your life.


Age being equal, males are generally charged higher premiums than females. One of the primary reasons for this is that the average life expectancy for a man in the U.S. is nearly 5 years less than that of a woman.

Personal Health Data

Expect your premium rates to be higher if you have health issues. This includes any chronic illnesses such diabetes.

Family Health History

If terminal health issues (e.g. cancer or stroke) run in your family, you will see more expensive premiums.

Foreign Travel

You may end up with higher premiums if you travel out of the country often. Some countries are considered more dangerous than others. The effect on your premiums will also depend on how often you travel, as well as for how long.

Unhealthy Habits

Smoking or drinking increase your risk for health issues and your health insurance premiums. Expect the insurance companies to ask you about these habits.

A glass of wine every now and then should not cause you many problems, as medical tests can easily separate alcohol abusers from casual drinkers.


If you are overweight or obese, you may have to pay higher premiums. This could apply to you if you have a BMI over 25 (overweight) or 30 (obese).

Men should be wary, as most insurance companies apply the same BMI standards for both men and women.

Driving Record

Some companies may look at your recent record to determine your driving habits. Any DUI’s or accidents you had in the past could count against you. In particular, incidents that occurred within the last 5 years will be the most relevant.

Criminal Record

Your premiums will also rise if you have a criminal record. If your criminal record is bad enough, you may even get declined entirely.

Recreational Activities

High-risk hobbies such as base jumping or big wave will raise your premiums. That said, different insurers have different


Hazardous jobs come with higher risks. For this reason, someone working on an oil rig can expect higher premiums than an accountant who stays in a cozy office all day.

How Do Premiums Differ Between Policy Types?

While all of the above factors help determine the premiums for each individual, the type of policy you choose affects premiums as well.

In fact, policy type has the largest impact on your life insurance premiums. Additionally, the length of the life insurance plays a key role as well.

There are two major types of life insurance: whole life (permanent) insurance and term life insurance.

Each option has its own strengths and weaknesses. You should base your choice on what goals you hope to accomplish with your life insurance.

Term life insurance is ideal if you are on a budget. Also, it is the best choice if you only need insurance for a specific period of time. For instance, you can purchase a 20-year policy to guarantee that your child can cover his or her college expenses.

In comparison, whole life insurance is great if you need coverage for the rest of your life. It is also useful if you are looking for a savings element when it comes to your life insurance policy.

Some insurance companies allow you to eventually convert your term policy to a whole policy

The biggest differences between the two options have to do with premiums.

When you compare the two types, you will find that term life insurance has much lower premiums than whole life insurance.

Whole life insurance has higher premiums in the early years and lower premiums in the later years. In contrast, term life insurance premiums remain level.

There are several reasons why the premiums of these two types of policies vary so much.

Whole life insurance guarantees a death benefit and builds tax-deferred cash value, whereas term life insurance has no cash value at all.

In the end, the benefits of whole life insurance raise its premiums far above term life insurance.

What About No Exam Life Insurance Premiums?

Most insurance companies will ask for a medical exam in order to assess your health. However, some people feel uncomfortable getting one.

It is important to note that you do have the option to purchase life insurance without a health examination. However, the premiums for term life insurance without a medical exam will be much higher. This is due to the fact that the insurance company must take on more risk.

Keep in mind that you may not have an option for no exam life insurance if you set off red flags in the lifestyle questionnaire.

Are Life Insurance Premiums Tax Deductible?

A very common misconception is that they are.

Sadly, life insurance premiums are not tax deductible for individuals. For the most part, this is the case you are self-employed as well.

There are, however, some rare situations where business owners can deduct life insurance premiums.

For example, if you own a business and pay life insurance for your employees, you can usually classify the premiums as operational expenses.

But when it comes to special rules like this, it is always best to discuss your individual situation with a tax professional.

Are There Regional Differences in Life Insurance Premiums?

For the most part, premiums are fairly consistent throughout the country. However, premiums can be higher in some parts of the U.S. than others.

The following factors could raise your rates:

  • If you live in an area where natural disasters (e.g., hurricanes, earthquakes, or tornados) are common
  • If you live in an area with a high murder rate
  • If your state has a high obesity rate
  • If you live in an area where certain health issues are common

That said, your personal health and age will still impact your life insurance premiums more than your location does.

What Are the Best Ways to Save on Your Premiums?

First, you can stop smoking. If you are young, you should stop now, as the rates for smokers are significantly higher than that of nonsmokers.

However, quitting while you already have a life insurance policy can still lower your premiums. Most insurance companies offer lower premiums for those who quit smoking for a certain amount of time—and you do not even need to apply for a new policy!

Second, purchase life insurance early. If you are young and know you will eventually purchase life insurance, do it as early as you can. As discussed earlier, age has a significant impact on premiums.

Third, opt for term life insurance, but only do so if it suits your goals. Your annual costs for term life insurance are much lower than for whole life insurance.


There are a number factors at play when it comes to premiums. In particular, age and health are the two biggest factors, outside of the type of policy you choose. However, there are

If you are deciding between your options, consider the purpose of your life insurance policy.

Ask yourself the following question: do I plan to use it for cash value accumulation, the safety of your family, or a combination of both?

Your ideal plan can vary substantially depending on your goals. If you are on a budget, choose the option the best suits it. Make sure you evaluate all of your options carefully before you make your final decision.

If you need more information on life insurance policies, keep checking our blog!

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